Rethink flood-insurance bill

Sunday

Feb 9, 2014 at 12:01 AM

Proposed legislation intended to create a deregulated market for private-sector flood insurance has been sent back to the drawing board -- where it belongs.

Last week, the Florida Senate's General Government Appropriations Subcommittee gave the bill some of the critical review it deserves -- but did not receive previously from the Banking and Insurance Committee, which unanimously approved the measure Jan. 8 as a committee substitute.

Fortunately, Sen. Nancy Detert, a Republican from Sarasota County, is on that committee as well as the Government Appropriations Subcommittee.

During the subcommittee's meeting, Detert raised serious questions about whether the bill contained sufficient consumer protections and warnings to property owners about the potential consequences of purchasing a policy from a deregulated insurer operating in Florida.

Brandes' bill would, among other things, allow newly created policies sold by private insurers to substantially reduce coverage levels. The bill would also enable "surplus-line" companies, which generally have lower standards for capitalization, to offer flood insurance.

Biggert-Waters reforms

The desire of Brandes and others -- including Sen. Bill Galvano, R-Bradenton, who has launched a public campaign to drum up support for a private-sector, Florida-based alternative -- is understandable.

Currently, flood-insurance policies are written by the federal government, through the National Flood Insurance Program. Significantly subsidized, in many instances, the NFIP policies have long offered low premiums and broad coverage.

But Congress' passage of the 2012 Biggert-Waters Flood Insurance Reform Act calls for dramatic changes, including much higher premiums, that are already being felt in parts of Florida and across the nation. The effects of the act will grow, unless Congress intervenes, if market-based premiums are eventually implemented. Even though a study requested by Congress -- to determine the affordability of rate hikes -- has not been completed, it is clear that the implementation of higher premiums and general uncertainty about future hikes could threaten economic recovery and real estate markets.

Unfortunately, the dysfunctional Congress has so far failed to delay substantial premium increases -- at least until the affordability study is conducted and assessed.

Yet there are concerns about Florida's attempts to dabble in flood insurance. For one thing, while flood insurance rates in some cases could triple or quadruple for some older, low-lying properties, the number of Florida homes affected will be relatively small. Florida TaxWatch, a nonpartisan research institute, estimates that premiums will rise for 13 percent of Florida's subsidized policyholders. It makes sense to accurately assess these impacts before rewriting Florida insurance laws.

Small-print exemptions

Then there is the worry, as expressed by Detert, that "average people" with little understanding of the complexities of insurance, could be misled by small-print exemptions and exclusions contained in lightly regulated, low-cost policies. What's more, as the experience with deregulation of windstorm property insurance has shown, there are no guarantees that so-called surplus lines will be well capitalized and capable of offering reduced-price premiums.

"We don't know what the market-based rate is," Brandes said Thursday. "This legislation offers the best opportunity to have a more reasonable rate."

Hold on: If the bill's sponsor does not know what the market-based rate is, he and his fellow legislators should be much more cautious -- actually, skeptical -- of assertions that a deregulated market in Florida would be good, safe and affordable.

And consider: If the move to market-based rates, as mandated by the Biggert-Waters Act, is causing such havoc, then how -- except by dramatically reducing coverage and capital requirements -- would the private market be better than the NFIP?

As Detert said Thursday, the proponents are talking about "high-risk" flood-insurance plans. The Legislature should accord such risky business the skepticism is deserves.